On the Clustering of Agents' Decisions: Herd Behavior Versus the Endogenous Timing of Actions

The purpose of this paper is to analyze the observed similarity of agents’ decisions. In what follows we will distinguish between clustering, which is the observation that agents’ decisions tend to be very similar, and herding, which is the statement that clustering occurs because some agents ignore their own information entirely. We provide a formal definition of clustering, illustrate a simple mechanism for clustering that does not involve herding and argue that clustering is likely to be a common phenomenon while herding is not. In particular, we consider a setting where agents choose both an action and the time at which to take the action. We show that allowing agents to choose when to act creates clustering, even when the previously studied motivations for herding are absent.